The U.S. Government decided to stop publishing their M3 numbers as of March 2006. While almost nobody blinked or made any noise about this decision, investors should be aware of the importance of Money Supply Numbers M1, M2, & M3.
The New York Fed gives the following definitions for the three money supply measures:
"The Federal Reserve publishes weekly and monthly data on three money supply measures -- M1, M2, and M3 -- as well as data on the total amount of debt of the nonfinancial sectors of the U.S. economy... The money supply measures reflect the different degrees of liquidity -- or spendability - that different types of money have.
The narrowest measure, M1, is restricted to the most liquid forms of money; it consists of currency in the hands of the public; travelers checks; demand deposits, and other deposits against which checks can be written.
M2 includes M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds.
M3 includes M2 plus large-denomination ($100,000 or more) time deposits, balances in institutional money funds, repurchase liabilities issued by depository institutions, and Eurodollars held by U.S. residents at foreign branches of U.S. banks and at all banks in the United Kingdom and Canada."
So what?
Expanding the Money Supply is an inflationary policy. The U.S. Dollar is backed by nothing other than the Government itself. The Gold reserves that backed currencies was eliminated in 1971 and now we are faced with the prospect of threats to the stability of this fiat currency. The article on Greenspan's Legacy - Part $ addresses the problems with fiat currencies in greater detail.
The Federal Reserve has stated that they would save money by not publishing M3 numbers. The money they will save is miniscule in consideration of the total U.S. Budget for 2006 and the excuse is lame. What is more likely is that increased international scrutiny on the M3 number will drive up long term interest rates as investors start to worry about the risk premium inherent in holding U.S. debt.
As of December, 2005, the M1, M2, and M3 numbers were as follows:
M1 = $1.397 Trillion
M2 = $6.718 Trillion
M3 = $10.216 Trillion
I don't blame the Fed for not publishing this number anymore. With a massive budget and trade deficit that has no apparent end in sight, they may need to keep the printing presses running 24/7 to keep this economy going. Since nobody will really know what's going on, the eventual massive pain that will be felt in the U.S. economy can be delayed for awhile longer.
